Global dairy market conditions are strengthening as milk powder prices continue to rise, bringing New Zealand dairy farmers closer to a potential farmgate milk price of $10 per kilogram of milk solids (kgMS) this season. Recent gains at the Global Dairy Trade (GDT) auction have improved market expectations, with stronger demand for whole milk powder (WMP) and skim milk powder (SMP) supporting the outlook for dairy export earnings.
The latest GDT auction recorded a significant increase in milk powder prices, with whole milk powder climbing nearly 6% to US$3,971 per metric tonne. This represents its highest level in approximately 14 months. Skim milk powder also recorded a strong performance, rising 3% to US$4,109 per metric tonne, its highest price since June 2022.
These developments are providing positive signals for New Zealand’s dairy industry, where international commodity prices play an important role in determining processor revenues and farmgate milk payments.
Fonterra Raises Upper End of Farmgate Milk Price Forecast
Fonterra, New Zealand’s major dairy cooperative, has a midpoint farmgate milk price forecast of NZ$9.75/kgMS for the current season. Following the latest improvements in dairy commodity markets, the cooperative has increased the upper end of its forecast range to NZ$10.50/kgMS.
The revised outlook indicates growing confidence in the strength of international milk powder markets. If prices remain elevated and demand continues to improve, dairy farmers could potentially receive payments approaching or exceeding NZ$10/kgMS.
Farmgate milk prices are a key indicator of profitability for New Zealand dairy producers. Stronger international prices can improve the revenue available to processors, creating opportunities for higher payments to supplying farmers, although actual returns also depend on processing costs, currency movements and other market factors.
Chinese Demand Expected to Support Milk Powder Markets
NZX dairy analyst Rosalind Crickett expects near-term demand for both whole milk powder and skim milk powder to remain strong over the coming months.
The timing is particularly significant because demand is expected to strengthen ahead of Chinese Lunar New Year celebrations. China remains an important destination for internationally traded dairy ingredients, particularly milk powders used in food manufacturing, beverages and other dairy applications.
Seasonal purchasing activity ahead of the celebrations could provide additional support to international milk powder prices. Strong demand from China, combined with other international buyers, may help sustain current market momentum.
For New Zealand dairy exporters, stronger demand creates opportunities to improve export returns and strengthen the overall outlook for the sector. However, the sustainability of these gains will depend on purchasing activity and the balance between global supply and demand.
Milk Fat Prices Decline Despite Strong Powder Markets
While milk powder prices are strengthening, the milk fat segment is experiencing a different market trend. Butter prices declined by 4.7% in the latest auction, while anhydrous milk fat (AMF) recorded a 3.2% decrease.
According to Crickett, the continued weakness in milk fat prices is largely associated with abundant cream availability. Higher cream supplies have contributed to a surplus of milk fat products, placing downward pressure on prices.
International trade data also indicates substantial volumes of butter and AMF circulating in the global market. Production growth across Europe, the United States, Argentina and New Zealand has contributed to the increased availability of these products.
This divergence between milk powder and milk fat prices highlights the varying conditions across different dairy commodity categories. While stronger powder markets are supporting the outlook for farmgate milk payments, weaker butter and AMF prices reflect ongoing supply pressures in the fat segment.
Implications for New Zealand’s Dairy Industry
The latest dairy commodity movements present a mixed but increasingly positive outlook for New Zealand dairy producers. Rising whole and skim milk powder prices are strengthening expectations for higher farmgate returns, while declining milk fat prices indicate that not all dairy product categories are experiencing the same market conditions.
A potential NZ$10/kgMS farmgate milk price would be an important development for farmers, particularly as production expenses, operating costs and investment requirements continue to influence farm profitability.
For processors and exporters, the challenge will be to capitalise on stronger milk powder demand while managing exposure to weaker milk fat markets.
The coming months will be important in determining whether current commodity price gains can be sustained. Chinese purchasing activity, international milk production and the availability of dairy ingredients will remain key factors influencing market direction.
With Fonterra’s revised forecast range and stronger GDT auction results, the possibility of a NZ$10/kgMS farmgate milk price is becoming increasingly realistic for New Zealand’s dairy industry.
